SEBI Introduces New Rules to Regulate Futures and Options Segment

The Securities and Exchange Board of India (SEBI) is set to implement a series of new rules aimed at regulating the Futures and Options (F&O) segment, effective November 20. These measures are designed to curb excessive and speculative trading in index derivatives.

Reduced Weekly Options Expiry Contracts

One of the key changes involves limiting the weekly options expiry contracts to only one benchmark index per exchange. Currently, exchanges like the NSE offer weekly contracts on multiple indices such as Nifty, Bank Nifty, Midcap, and FinNifty, while the BSE offers contracts on Sensex and Bankex. Under the new rules, each exchange will have to select a single index for weekly expiry contracts.

Increased Minimum Contract Value

SEBI has proposed to increase the minimum value of derivatives contracts from the current 5 lakh to 10 lakh to 15 lakh to 20 lakh. This move is intended to reduce the participation of small retail traders who often incur significant losses due to speculative trading.

Upfront Collection of Option Premiums

Starting February 2025, SEBI will mandate the upfront collection of option premiums from buyers. This measure is aimed at reducing the speculative nature of trading in the F&O segment.

Enhanced Margin Requirements

The new rules also include increased margin requirements. Specifically, the Extreme Loss Margin (ELM) will be increased by 3% at the start of the day before expiry and by an additional 5% on the expiry day. Furthermore, an additional 2% margin will be required for short options contracts on the day they expire.

Intraday Position Monitoring

SEBI has instructed exchanges to monitor intraday position limits for equity index derivatives to ensure better risk management and reduce the likelihood of excessive trading.

Removal of Calendar Spread Benefit

The margin benefit for calendar spread positions will no longer be available for contracts expiring on the same day. This change is part of the broader effort to reduce speculative trading strategies.

These new measures are part of SEBI's ongoing efforts to protect investors and maintain market stability, particularly in light of a recent study that showed significant losses incurred by retail F&O traders over the past three financial years.